Bitcoin

A Brief History of Bitcoin

Virtual currency has been a hot topic for over a decade now. With so much recent news, it can be difficult to fully understand the significance and overall purpose of this expanding market. The task is made easier, however, by knowing the history of the most widely-traded crypto on the market: Bitcoin.

Bitcoin was first introduced in 2008 as a decentralized currency without the need for a central bank or any intermediaries. It can be sent to and from users via the bitcoin network, a peer-to-peer network in which transactions are authenticated by nodes and recorded on a blockchain.

The inventor of Bitcoin remains a bit of a mystery. A paper titled Bitcoin: A Peer-to-Peer Electronic Cash System was posted on Oct. 31, 2008 to a cryptography mailing list with “Satoshi Nakamoto” as the author. However, Nakamoto has never revealed any personal information about himself and his identity has never been confirmed. This has led many to believe the name is a pseudonym for one or more creators.

In 2009, Bitcoin was first used after it was released as open-source software, when Nakamoto mined the starting block of the blockchain. This is referred to as the Genesis Block, and it contained the first 50 Bitcoins ever created. From there on, Bitcoin continued to be mined by other early contributors until 2010. That’s when programmer Laszlo Hanyecz made the first known commercial transaction using the cryptocurrency through the purchase of two Papa John’s pizzas for 10,000 Bitcoins. (Fun fact: That amount of Bitcoin is worth over $300 million as of this writing).

Since then, Bitcoin has been traded hundreds of millions of times, with the earliest major transactions occurring in black markets. The largest of these was Silk Road, which traded nearly 10 million Bitcoins during its existence.

Because of black market use of cryptocurrency, regulation emerged from several countries. The People’s Bank of China initiated the most impactful regulations with three separate actions:

1. In December of 2013, the bank prohibited financial institutions from using Bitcoin.

2.In September of 2017, it issued a complete ban on the use of Bitcoin

3.In June of 2021, it implemented a crackdown on major cryptocurrency miners.

After each of these instances, the price of Bitcoin halved. In spite of these regulations, however, the price of Bitcoin is still supported and trending upward thanks to institutions and countries allowing the use of cryptocurrency. The two most recent examples can be found through the Tala, Circle, and Stellar Development Foundations’ partnership with Visa, as well as El Salvador’s legislation to make Bitcoin legal tender.

News on Bitcoin and other cryptocurrencies evolves on a daily basis. In fact, El Salvador’s update on legal use of Bitcoin occurred just two weeks before this writing.

Because of the crypto market’s highly volatile nature in nearly all aspects, we recommend that you consult your advisor before investing in any virtual currency. They can help ensure correct record-keeping, decision-making and security to protect yourself and your money from sudden price fluctuations and updates to regulation.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

Virtual Currency 101: Terminology, Taxation and Guidance

Virtual currency (such as Bitcoin) has been booming this past year. People have made sizeable investments in the emerging market, some of which have earned thousands (if not millions) of dollars in gains.

However, most investors have yet to test the waters due to uncertainty and lack of knowledge about the new market. To fully understand what virtual currency entails, know the terminology frequently used by its traders and the tax implications involved.

Blockchain

A blockchain is a database that composes all of the transactions ever made in a particular virtual currency. When a transaction is entered, it’s transmitted to a decentralized network of peer-to-peer computers that validify the transaction by solving a combination of equations. Once transactions are validated, they’re grouped into blocks and permanently chained to other blocks when filled. Blockchains are not only used for cryptocurrency, but also for other secure transactions like legal contracts and product inventories.

Mining

Mining is the process of verifying new transactions on a blockchain. Miners receive portions of crypto for completing verifications of each transaction. Validating transactions requires specialized, high-end computers to solve sets of complex algorithms. This is known as a proof-of-work system, which essentially secures the transaction and protects it from malicious tampering. This process is what has made cryptocurrency so secure, but it’s also costly in other ways.

Gas Price

When you make a transaction on certain blockchains (like Ethereum), a fee is associated with it. This fee is known as the gas price—a payment set by miners to compensate themselves for their energy costs (known as gas) associated with mining/validating transactions. You may have seen the term gas limit thrown around as well. This is the maximum gas price the person creating the transaction is willing to pay. A higher gas limit results in more work that can be done to execute the transaction.

Taxation

According to IRS Notice 2014-21, virtual currency is treated as property for tax purposes. This means you must report on your income tax return the fair market value of virtual currency at the date of payment or receipt in U.S. dollars. If virtual currency is exchanged for other property and the fair market value of that property exceeds the adjusted basis of the currency, you have a taxable gain; if it’s less, you incur a loss. Additionally, payments made using virtual currency are subject to the same backup withholding as other payments made with property.

Guidance

While guidance surrounding the taxation of virtual currency has been slim in recent years, we can expect more in the near future. President Biden’s 2022 budget proposal allows additional funding for the IRS’s guidance on tax compliance regarding virtual currency. In fact, we’re already receiving recent crackdowns from the IRS in April and May regarding two IRS summons for customer records surrounding Circle and Kraken crypto exchanges.

The Treasury Department has also released the American-Families-Plan-Tax-Compliance-Agenda. This proposal would require all financial institutions, including crypto asset exchanges, to report to the IRS gross inflows and outflows on all business and personal accounts.

With the increasing interest and guidance from the IRS, it’s important to consult your tax adviser for any virtual currency transactions you have performed (or plan on performing in the future). This information is constantly updating and could easily change in the upcoming days or weeks.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

List of Different Types of Cryptocurrencies

Bitcoin

Ticker Symbol: BTC

Market Cap: Over $435 Billion

Despite the thousands of competitors, Bitcoin—the first and largest cryptocurrency—remains the leading player in terms of volumes and economic value. Bitcoin continues to lead the crypto market in terms of market capitalization, user base, and popularity. Launched in 2009 by Satoshi Nakamoto, Bitcoin has touched its highest peak of $68,000 in 2021. Bitcoin supports both smart contracts and DApps because of its major updates like lightning network and taproot update.

Bitcoin is currently being traded at $22,950 as of January 2023.

Interesting Fact: Bitcoin price is highly volatile. Since its launch in 2009, Bitcoin’s has risen from $ 0.07 to an all-time-high of $68,521 on November 5th, 2021.

Ethereum

Ticker: ETH

Market Cap: $190 Billion

Ethereum is an open-source decentralized blockchain with smart contract functionality. Ethereum is the second largest cryptocurrency which holds a very strong and dominant position in the crypto market after Bitcoin. Ethereum operates on its blockchain and supports smart contracts which run on its own blockchain and are executed automatically when certain conditions are met. Ether is the cryptocurrency which runs on the Ethereum blockchain.

ETH, launched in 2015, currently trading around at the levels of $1,500 as of January 2023.

Interesting Fact: In 2022, Ethereum switched to proof-of-stake from proof-of-work model, which is considered as one of the biggest transitions in the crypto world. It is significant as it marked a massive reduction on the front of the energy footprint.

Binance Coin (BNB)

Ticker: BNB

Market Cap: Over $47 Billion

Binance coin is the native coin of Binance exchange, which is the world’s largest cryptocurrency exchange in the world. BNB was launched in 2018 which is used for several purposes such as trading, credit card payments, payment processing, loan and other transfers. To encourage its adoption, the transaction fees for Binance exchange are less for the users who pay in BNB. To make its value stable, Binance destroys or burns a fixed percentage of the coins in circulation.

Binance is currently trading around near the levels of $300 as of January 2023.

Interesting Fact: Binance is the largest hub for free crypto and blockchain resources. It launched Binance Academy in 2018 which also rewards learners for enhancing their knowledge in blockchain and crypto space.

Tether

Ticker: USDT

Market Cap: Over $67 Billion

USDT is a stablecoin which is pegged against the U.S. dollar issued by the Hong Kong based company Tether. It is to be noted that the Tether is backed by an equivalent number of U.S. dollars, which means it experiences the same kind of pricing volatility. As other cryptocurrencies fluctuate in value, tether’s price is usually equivalent to $1.

It does not have its own blockchain; rather it runs as a second-layer token on top of other multiple blockchains such as Bitcoin, Ethereum, Tron, Algorand, Bitcoin Cash and OMG, and thus it is secured by their respective hashing algorithms. Tether is not minable because of its asset-backed nature thus new Tether is issued to verified users who make fiat currency deposits.

Interesting Fact: Post Terra Luna Crash, on May 12, 2022, Tether lost its 1:1 peg to the US dollar, and sank to as low as 95 cents. However, the price of Tether soon recovered to 99 cents again, but this incident shook the confidence of many cryptocurrency traders.

Cardano

Ticker: ADA

Market Cap: Over $12 Billion

Cardano which is also known as “Ethereum Killer” is much known in the industry due to its advanced smart contract functionality. It has been able to establish DeFi products very similar to Ethereum and also provides solutions for chain interoperability. ADA is the native coin of Cardano which is co-founded by Charles Hoskinson, one of the five initial founding members of Ethereum.

As of January 2023, Cardano has the eighth largest market capitalization and one ADA is valued around $0.37.

Interesting fact: Cardano coin is much eco-friendlier and energy efficient as compared to its peers. This is simply because Cardano used an algorithm called “Ouroboros” which is unlike Bitcoin. Infact, Ouroboros is a highly secure and efficient proof of stake network protocol.

Solana

Ticker: SOL

Market Cap: Over $8.8 Billion

Solana is a blockchain platform which was launched in 2017 with an aim to provide speedy execution of decentralized apps (dApps). Like Cardano, Solana is also known as “Ethereum Killer” which is able to perform many more transactions per second (TPS) than Ethereum at lower transaction fees. Solana is designed to scale with the industry availability of CPU, memory and network bandwidth.

The cryptocurrency which runs on the Solana blockchain is called Solana (SOL). As of January 2023, Solana is the eleventh largest cryptocurrency in the world, trading around the levels of $24.

Solana is one of the most competitive Ethereum killers which has the fastest TPS amongst all the major blockchain. The Solana blockchain runs with a transaction speed of 3,000 TPS using a hybrid proof-of-history (PoH) and proof-of-stake (PoS) consensus mechanism.

Polkadot

Ticker: DOT

Market Cap: Over $7.3 Billion

Polkadot is a token which can be bought or sold via exchanges easily. It uses a nominated proof-of-stake mechanism for network security, verification of transaction and distribution of new DOT. DOT is the native cryptocurrency of Polkadot which was launched in 2016. It is a shard blockchain and thus it connects several different chains together under a single network. It allows them to process transactions in parallel and transfer data between chains without sacrificing its security. Polkadot is highly scalable as it is able to connect several blockchains in a way which was not possible before.

Polkadot is currently being traded at $6.41 as of January 22.

Interesting Fact: Polkadot ties a network of heterogeneous blockchain shards called parachains. These chains connect to and are secured by the “Relay Chain”. They can also connect with external networks via bridges.

Litecoin

Ticker: LTC

Market Cap: Over $6 Billion

Litecoin, launched in 2011 is known for its simplicity and utility benefits. It is known as a light version of Bitcoin but works on an entirely different algorithm known as Scrypt. Litecoin is minable and also has a faster transaction processing time compared to Bitcoin. Litecoin was launched with 150 pre-mined coins and has a maximum supply of 84 million coins. Like Bitcoin, the Litecoin supply is also designed to reduce over time to preserve the coin’s value.

As of January 2023, Litecoin is traded around at the levels of $87.84.

Interesting Fact: If Bitcoin is described as digital gold, Litecoin tries to fulfill the role of digital (metal) money. Litecoin has its own blockchain along with the catchphrase “Silver to Bitcoin’s gold”. Litecoin is one of the oldest cryptocurrencies and is therefore well established in the crypto world.

Dai

Ticker: DAI

Market Cap: Over $5 Billion

Dai is a stable cryptocurrency which runs on the Ethereum blockchain. Like Tether, it is also pegged against the U.S dollar in the ratio of 1:1. The value of one DAI is the same as the value of one U.S dollar. DAI is thus a so-called “stablecoin”. Technically, DAI is an Ethereum-based application which is built on the same blockchain as Ethereum. However, unlike Tether, DAI is decentralized, which means that no centralized authority regulates the supply of new DAIs in circulation. Therefore, it is also widely used in services which offer decentralized loans and interest-bearing funds.

Interesting Fact: Stablecoins like Dai try to maintain a value of $1. However, there can be minute fluctuations. Dai’s price has exceeded $1.10 and gone under $0.90 for brief periods of time. The smart contracts which Dai manages helps in correcting these fluctuations quickly. So, if you wish to purchase Dai when the price is below $1, which means you are getting quite a good deal.

The Sandbox

Ticker: SAND

Market Cap: Over $1 Billion

The Sandbox is an Ethereum-based virtual gaming world which facilitates its players to create, build, buy and monetize their virtual assets in the form of a game. It combines the power of decentralized autonomous organizations which is popularly known as (DAO) and non-fungible tokens (NFTs).

As of January 2023, the value of SAND stands at $0.72 with a market cap of over one billion dollars.

Interesting fact: The Sandbox first began live as an open-source mobile game in 2012 but without any blockchain or NFT essentials. Now, the latest version of The Sandbox is a face of metaverse and made up of NFT and the Web3 elements.

Tron

Ticker: TRX

Market Cap: Over $5 Billion

Launched in 2017, Tron is a blockchain-based project which works on delegated proof-of-stake consensus mechanisms. It is designed to support dApps and smart contract functionality with the best user experience and design. In 2018, the TRX cryptocurrency gained mainstream attention when the non-profit company, the Tron Foundation, acquired content sharing platform BitTorrent.

Tron was once an Ethereum-based ERC-20 token, but now it is a separate coin. Its blockchain gets a new block after every three seconds, and those validators who added the block get awarded 32 TRX tokens.

At the time of writing, TRX is holding the 16th rank amongst the top cryptocurrencies., with its current price sitting at $0.06246.

Interesting Fact: It is to be noted that there are no transaction fees for TRX, which is a quite unique and remarkable feature. Moreover, the network is able to support 2000 transactions per second.

Avalanche

Ticker: AVAX

Market Cap: Over $5 Billion

Launched in 2020, Avalanche is known in the crypto space for its fastest TPS and highly scalable blockchain solutions. It has an impressive 4,500 TPS, with a block time of one to two seconds. Avalanche uses a proof-of-stake mechanism and a unique three-layered blockchain system which makes it an ideal example for web 3.0. Its native token is AVAX, and is used widely for the platform’s payments, security, and connection functions.

At the time of writing, AVAX is holding the 17th rank amongst the top cryptocurrencies, with its current price sitting at $18.

Bottom Line

Over the past decade, several new cryptocurrencies have come and vanished, not all of them have survived in this evolving space of the crypto world. The above-mentioned are the types of digital coins which are an interesting option not only because they are budding, but these coins have also established and proven their relevance by sticking around in hard times while others just have faded out.

However, when one deals in crypto coins, the prudent approach is to always take it slowly and act sensibly. First, test the cryptocurrency — either through purchase via exchange or by minting via mining and then measure the results. Through proper testing, you will understand the benefits and also will get to know whether a particular cryptocurrency is capable of providing long-term rewards or not.